Unity Bank Integration

The merger and acquisition of Delta by Unity Bank forces the integration of two companies with different core competencies, Information Systems and organizational structures and cultures. The CIO of operations, Stuart Irving must decide on the best strategy that would maximize the benefits of the merger by leveraging synergies against the potential costs and risks. Following the recommendation of the IT Governance Institute, newly merged company should establish effective duopoly IT governance with special focus on strategic alignment. Executive and department level steering committees consisting of members of both companies should be granted decision rights with respect to strategic direction, resource allocation, and prioritization. Even though there are disadvantages to this decision that mainly come from increased difficulty of reaching compromise agreements, they are by far outweighed by benefits of immediate propagation of clear direction throughout both companies, leveraging synergies while minimizing risks, and effective change management process that utilizes core competencies of both companies.

Summary of Relevant Facts

Unity Bank, a small South African bank has acquired Delta Bank, a much larger US based bank for $310M, as a way of breaking into the US market. Unity’s Board of Directors has identified synergy savings as a result of the merging of various legacy IS systems of $60M, expected to be realized within 3 years. An Integration Team lead by Stuart Irving, Unity Bank CIO for Integration has been tasked to achieve this goal, in the climate of mergers failing to realize value for stockholders and stakeholders alike.

Problem

Integration of the two companies involves a trade-off between benefits resulting from leveraging synergies against the potential costs and risks that stem from differences in organizational structure and culture, incompatibility of IT systems, use of legacy systems, conversion costs and significant risk of disturbing operations of both companies. The CIO of operations, Stuart Irving, must decide on strategy that would prioritize necessary changes affecting organizational structure, software, infrastructure, and employees without affecting operations of both companies.

Decision

In order to facilitate smooth integration and aid the establishment of strategic direction without significant disturbance in operations, the newly merged company should establish effective duopoly IT governance with special focus on strategic alignment. Executive and department level steering committees should be granted decision rights, provide strategic direction and ensure that adequate resources are allocated to the IS organizations. Strategic alignment will be achieved by leveraging the stakeholders’ value drivers and achieving effective synergies between the core competencies of the two companies. Consequently, the suggested priorities in implementation of IT governance should start with strategic alignment, followed by risk management, IT value delivery, and performance management.

Our decision is based on the recommendation from IT Governance Institute and we believe will result in immediate propagation of clear direction throughout both companies, signal measure of order and control, assign decision rights to the representatives of both organizations, decrease employee resistance, facilitate effective change management, maximize core competencies of both companies, maximize use of technology and provide platform for synergy savings while decreasing the negative effect of the merger on employee morale and reducing integration risk by facilitating thorough planning. This decision comes with some disadvantages however, which we identified to be increased difficulty in reaching a compromise agreement as representative from both organizations are present in committees, increased possibility of conflict of interest between the members of committees with regards to policy, technology, and staffing of both companies and delay in cost savings. It is our belief however, that these disadvantages are by far outweighed by far reaching benefits.

Decision Rationale

Our decision is based on the recommendation of the IT Governance Institute that stresses the importance of IT governance in creating alignment between two companies as well as identifies the IT governance focus areas to be stakeholder value drivers, strategic alignment, value delivery, resource management, risk management, and performance management.

According to the IT Governance Institute, Board Briefing on IT Governance, 2nd ed., “IT governance is an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategy and objectives.”1

Alternatives

Alternative 1: IT Strategic Alignment Focus of IT Governance

This is the preferred alternative. Our recommendation is to first define the stakeholder value drivers and then use them to create strategic alignment with IT. As depicted by the above diagram, strategic alignment will maximize the use of time and resources in order to create a solution that will best achieve the goals of the newly merged company. Clearly defined IS strategy will be created by steering committees and will include core competencies of both companies in order to provide value to stakeholders.

The suggested priorities of the integration focus:

1. Strategic alignment,
2. Risk management,
3. IT value delivery,
4. Performance measurement.

Advantages

• Aligns business strategy of stakeholders with IT and organizational strategy,
• Communicates a clear direction as quickly as possible,
• Signals a measure of order and control to the newly merged firm,
• Assigns decision rights to the representatives of both organizations,
• Decreases employee resistance by putting governance in the hands of both companies,
• Facilitates effective change management,
• Maximizes core competencies of both companies,
• Maximizes use of technology and provides platform for synergy savings,
• Decreases the negative effect of the merger on employee morale,
• Reduces integration risk by facilitating thorough planning. Disadvantages
• Increases difficulty in reaching a compromise agreement as representatives from both organizations are present in each committee,
• Increases possibility of conflict of interests between the members of committees with regards to policy, technology, and staffing of both companies,
• Might result in delay of cost savings.

Alternative 2: Risk Management Focus of IT Governance

This is our second recommendation that focuses on risk and liability reduction and regulatory compliance. The risks associated with the merger of the two companies were identified as financial and resulted in Unity’s Board of Director’s mandate to save $6M in 3 years, operational stemming from disturbance in operations resulting from merger of IT systems, and organizational resulting from differences in corporate structure, culture, employee morale and skills.

The suggested priorities of the integration focus:

1. Risk management,
2. Strategic alignment,
3. IT value delivery,
4. Performance measurement.

Advantages

• Cost savings that result from quickly implemented changes in infrastructure, • Cost savings resulting from layoffs of excess staff, • Immediate increase in profitability.

Disadvantages
• Maximizing cost savings before clear long term strategy is established might lead to hasty decision making that results in increased long term expense, • Risk of less than optimal IT systems solution,

• Risk of loss of some of the competencies from either company, • Risk of losing valuable employees,
• Risk of loss of customer-centric focus and value adding activities that might affect revenue and profit growth, • Layoffs,
• Decrease in employee morale,
• Increased difficulty in implementing effective change management, • Possible misalignment of business strategies and technical capabilities or loss of some core competencies in either company.

Alternative 3: Value Delivery Focus of IT Governance

Our third alternative sets priority on value delivery focus of IT governance. Our recommendation is on building immediate value for the customer by designing SOA in order to provide platform for immediate integration of all systems while at the same time creating scalability that would facilitate future systems consolidations. Company wide data warehouse and business intelligence solution would allow customers to have a consolidated and time variant view of all accounts.

The suggested priorities of the integration focus:

1. IT value delivery,
2. Strategic alignment,
3. Risk management,
4. Performance measurement.

Advantages

• Provide a unified and consistent view of the merged company to the customers,
• Increase in functionality of the systems,
• Better servicing of customer accounts,
• Added value of the product aiding differentiation and positioning,
• Increases customer loyalty,
• Aids in customer retention,
• Increases long term profits.

Disadvantages
• Increase in initial spending that might be financially risky,
• Delayed integration of legacy systems,
• Delayed cost savings from infrastructure changes,
• Delayed cost savings coming from layoffs of excess staff.

Alternative 4: Performance Measurement Focus of IT Governance

Our fourth alternative prioritizes performance measurement focus of IT governance that would evaluate IT resources, employees, processes, and operational excellence in order to create strategic alignment of business processes, organizational structure, and IT in newly merged company. Balanced score card will be the preferred method.

The suggested priorities of the integration focus:

1. Performance measurement,
2. Strategic alignment,
3. IT value delivery,
4. Risk management.

Advantages

• Identifies strengths and weaknesses of the newly merged company, • Creates platform for gap analysis,
• Allows for targeted corrective measures,
• Identifies inefficiencies and ways of improvement,
• Holds staff accountable,
• Identifies top performers,
• Fosters competition.

Disadvantages
• Possible delay in taking advantage of strategic synergies, • Difficulty in establishing meaningful KPI’s that would be aligned with strategic objectives, • Waste of resources on measuring performance of systems that might be sunset in the near future, • Might decrease employee morale.

Steps for Implementation

1. In order to facilitate smooth integration and aid the establishment of strategic direction without significant disturbance in operations, the newly merged company should establish effective duopoly IT governance with special focus on strategic alignment. Executive and department level steering committees will be granted decision rights, provide strategic direction, and ensure that adequate resources are allocated to the IS organizations.

2. Set up IT Governance Council that would report directly to the CEO and the Board of Directors, consisting of the CIO and top level executives from both companies. The IT Governance Council will define the stakeholder value drivers and then use them to create strategic alignment with IT. It will create strategic direction and have funding authority for major IT projects as well as ensure that adequate resources are allocated to the IT organization for achieving strategic goals.

3. Form Post-Merger IT Integration Steering Board consisting of the IT managers from both Delta and Unity that would be responsible for making strategic and far-reaching decisions about the transformation of IT in the newly merged company.

4. Form Post-Merger IT Integration Steering Committees responsible for development of specific integration plans and support of specific IT decisions which require the involvement of business units. The Steering Committees comprised of business unit managers from Delta and Unity will act as a project management office by coordinating the work of all integration teams and keeping them on track from an operational perspective.

5. Set up working groups consisting of architects, developers, testers, and service from both companies to help steering committees in managing and execution of the integration projects.

6. Develop human resources philosophy for the newly merged company that would be based on Unity’s strength of acquiring and maintaining the most talented employees on the market. Additionally, the new philosophy will include well designed career road maps supported by mentoring programs and cross training opportunities for all employees in order to give them a chance to learn new skills that will be needed in the organization while still maintaining systems that are going to be sunset.

Conclusion: Balancing Competing Priorities

The success of the integration of Delta and Unity depends on how well the two companies are able leverage synergies against potential costs and risks. The difficult task of balancing competing priorities of managing business-critical systems with the control and stability needed to achieve target levels of availability, performance, security, and cost during the integration as well as the agility and time needed to meet the changing requirements of a dynamic business environment can be achieved by focus on effective IT governance and decision-making structure. Strategic alignment should become the priority in order to optimize the use of time and resources and create a solution that will best achieve the goals of the newly merged company while taking advantage of core competencies of both companies.

A strategic alignment focus of IT governance further harmonizes IT-related integration issues with desired behaviors and business objectives. In taking this approach, all stakeholders would be required to participate in the decision-making process. This creates a shared acceptance of responsibility for critical systems and ensures that IT-related decisions are made and driven by the business and not vice versa. By focusing on strategic alignment as part of the IT governance framework, IT can be truly a revenue enabler in the merger rather than merely a utility service provider.

References

IT IG Board Briefing in IT Governance, 2nd Edition, IT Governance Institute, 2003, www.itigi.org

Keri Pearlson, Carol Saunders Managing and Using Information Systems A Strategic Approach, John Wiley & Sons Inc., 2010